Football clubs should be prohibited from selling crypto-based “fan tokens” as part of their engagement with supporters by the incoming regulator of the sport, according to a cross-party committee of MPs.
The Culture, Media and Sport Committee (CMS) warns in its report about the volatility of prices and the risk of financial harm to supporters who are persuaded to purchase the tokens for club access and rewards.
CMS committee chair Dame Caroline Dinenage MP said, “In the world of sport, clubs are promoting volatile cryptoasset schemes to extract additional money from loyal supporters, often with promises of privileges and perks that fail to materialize.
“Fan token schemes must not be used as a substitute for meaningful engagement with supporters.”
The MPs single out Socios as a sports cryptoassets marketplace that generates cash from fans in exchange for apparent access that does not always meet expectations.
The CMS committee report states, “The unique relationship between clubs and fans means that fan speculation on sport-based cryptoassets carries a real risk of financial harm to fans and reputational harm to clubs.
“We are also concerned that clubs may present fan tokens as an appropriate form of fan engagement in the future, despite their price volatility and reservations among fan groups.
“We recommend that any measurement of fan engagement in sports, including in the forthcoming regulation of football, explicitly exclude the use of fan tokens.”
The government plans to introduce a regulator for English football next year.
The regulator system is being established to ensure that clubs prove their business models are financially sound and that they have good corporate governance before being allowed to compete.
What are fan tokens?
Fan tokens’ value ostensibly derives from giving its owner a say in club matters, often trivial such as what song will be played at half time, or which player will run the club Instagram account for a day.
They also create a bespoke club cryptocurrency, however, the value of which Socios says is determined by supply and demand and fan sentiment.
With clubs holding the balance of tokens and deciding when to release them for sale, analysis has shown the major driver of price fluctuations is not a club’s form or supporter engagement, but the wider, and highly volatile, crypto market.
The Financial Conduct Authority categorizes them as crypto assets, a complex investment subject to big price swings which could expose investors to big losses.
Socios claims to have deals with over 100 teams, including Premier League champions Manchester City and Arsenal.
The CMS committee stated that for “differing reasons,” Socios, which has Lionel Messi as a brand ambassador, could not attend a session to provide evidence.
Socios did not directly respond to the criticism, but in a statement to Sky News, it said, “Fan token holders received more than 24,000 matchday tickets and over 1,000 items of merchandise last season, and continue to engage with their club in a unique new way.
“Fan Tokens offer new and complementary benefits to clubs’ traditional fan engagement beyond the boundaries of geography, and unlike NFTs (non-fungible tokens), are regulated by the FCA (Financial Conduct Authority).”
The Socios website now displays a variety of warnings.
“Fan Tokens are a type of utility token,” one of them states.
“They are obtained by exchanging them for the Chiliz cryptocurrency ($ CHZ), which can be purchased on the Socios.com app after downloading it.
“Before using crypto-assets (tokens), consider that: (a) their value can go down or up; (b) they are not regulated in most countries; (c) you may have to pay taxes on any profits made from their sale.”
On crypto exchanges, the value of Chiliz has dropped from 25 cents (15p) to around 5 cents (3p) in two years.